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The Expert View: Unilever, Interserve & Marshalls

Our daily roundup of analyst commentary on shares, including Segro and Metro Bank.

by Michelle McGagh on Oct 20, 2017 at 05:01

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Key stats
Market capitalisation£120,772m
No. of shares out2,812m
No. of shares floating1,178m
No. of common shareholdersnot stated
No. of employees168832
Trading volume (10 day avg.)3m
Turnover47,060m EUR
Profit before tax8,053m EUR
Earnings per share1.62 EUR
Cashflow per share2.19 EUR
Cash per share1.16 EUR

Unilever should get leaner and meaner, says Hargreaves

Consumer giant Unilever (ULVR) may be coming under pressure from nimbler competitors but Hargreaves Lansdown said its cost-cutting programme still means margins can improve.

Charlie Huggins, fund manager of HL Select that holds Unilever, said the third quarter results were ‘slightly disappointing’ due to weak performance in developed markets, unfavourable weather in Europe, and natural disasters in the Americas.

‘Life is becoming more difficult for the consumer goods giants, as competition from smaller, nimbler players intensifies and consumer preferences shift towards niche and alternative brands,’ he said.

The company has cut costs and raised prices but these are short-term fixes. However, Huggins said there is plenty to ‘keep investors interested’ after it rejected a bid from Kraft-Heinz earlier this year.

‘The business throws off cash, which can either be returned to investors or used to acquire fast-growing brands,’ he said. ‘The group is only at the start of a major cost-cutting programme, so there should still be plenty of scope for margins to rise. And in the long run, Unilever’s significant exposure to some of the fastest growing areas of the world, like India and China, should stand it in good stead.’

Unilever was the FTSE 100’s biggest faller yesterday, sliding 5.5% to close £2.49 lower at £42.99.

Key stats
Market capitalisation£96m
No. of shares out146m
No. of shares floating134m
No. of common shareholdersnot stated
No. of employees46246
Trading volume (10 day avg.)2m
Profit before tax£125m
Earnings per share-71.22p
Cashflow per share-22.53p
Cash per share77.76p

Interserve is ‘cheap enough’ after two shocks, hopes Liberum

Liberum is sticking with its ‘buy’ recommendation on Interserve (IRV) after taking the pain of two profits warnings from the support services and construction business.

Shares in the company crashed over 50% last month after it issued a profits warning and said it was looking at options to maximise cash generation. Yesterday they plunged another 27% or 24.5p to 65.5p after revealing a further deterioration in trading left it at risk of breaching its bank loan agreements.

It now expects second half operating profits to be about half the level of last year and has made an additional £35 million provision against cost-overruns in its energy-to-waste contracts.

Liberum analyst Joe Brent retained his ‘buy’ rating but lowered share price target from 180p to 150p. ‘PwC has been appointed by the company to help with the discussion, which are being described as “constructive”, as they always are – until they aren’t,’ said Brent. ‘We expect discussions to be wide-ranging and to include identifying disposal opportunities within the business.’

Despite Interserve’s problems he added that its order book had increased from £7.1 billion at the interims to £7.4 billion. ‘Clear financial risks but the revised current year 2018 price/earnings of 1.7x is cheap enough,’ he said.

Key stats
Market capitalisation£920m
No. of shares out199m
No. of shares floating188m
No. of common shareholdersnot stated
No. of employees2250
Trading volume (10 day avg.)m
Profit before tax£61m
Earnings per share18.61p
Cashflow per share25.24p
Cash per share10.37p

Pipe-maker acquisition pushes Marshalls to new high

Marshalls’ (MLSH) acquisition of underwater pipe maker CPM offers short and long-term benefits for the landscaping materials company, says Peel Hunt.

Analyst Clyde Lewis retained his ‘buy’ recommendation and increased the target price from 450p to 490p on the stock, which jumped 4.8% to close 23.5p up at an all-time high of 462.3p.

‘The £38 million acquisition of a leading UK water management concrete products business fits the strategy the group has been espousing for some time,’ he said.

'The price paid and debt funding leads to a c.7% earnings enhancement in 2018, while we also expect the group to benefit from raw material and other cost savings.’

Looking further down the line, Lewis said the bigger medium-term gain ‘arguably comes from the more complete package of water management products the group is now able to offer’.

Key stats
Market capitalisation£5,529m
No. of shares out1,003m
No. of shares floating996m
No. of common shareholdersnot stated
No. of employees285
Trading volume (10 day avg.)4m
Profit before tax£171m
Earnings per share51.28p
Cashflow per share51.84p
Cash per share5.14p

Positive Segro pleases Numis despite share price premium

A trading statement from Segro (SGRO) left Numis Securities happy with the European real estate investment trust’s prospects, but a little concerned with the stock’s premium rating.

Analyst Robert Duncan retained his ‘add’ recommendation and target price of 580p as the shares slipped 2.5p to close 0.45% down at 551.5p.

Duncan said the update showed Segro ‘continues with its strategy of developing space into supply constrained markets which is also allowing it to capture reversion on standing assets’.

Although there has been a slight fall in rent renewals and reviews in Europe he said there was an ‘overall positive tone’ to the outlook.

‘The challenge from here is the high net asset value rating – 7% premium – and relatively low dividend yield of 3%,’ he said. ‘That said, we believe Segro is doing a good job of creating value and there is a positive momentum in earnings growth.’

Key stats
Market capitalisation£3,127m
No. of shares out88m
No. of shares floating66m
No. of common shareholdersnot stated
No. of employees2129
Trading volume (10 day avg.)m
Profit before tax£17m
Earnings per share-21.82p
Cashflow per share7.33p
Cash per share622.89p

Metro Bank starting to motor, says Jefferies

Jefferies predicts Metro Bank (MTRO) will generate £250 million of earnings in 2020 but says profits will not start to ramp up until next year.

Analyst Joseph Dickerson retained his ‘buy’ recommendation but lowered his target price from £45 to £42 on the stock, which slipped 15p or 0.4% to £35.46.

‘Non-interest bearing deposits account for 31% of Metro’s total, nearly twice the industry average, meaning that Metro should be geared to rising short [interest] rates and a steepening yield curve,’ he said.

‘Our expectations for the profit ramp in 2017 were too aggressive and we adjust our earnings downwards while our 2018-20 earnings estimates are largely unchanged.’

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  • Unilever PLC (ULVR.L)
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  • Marshalls PLC (MSLH.L)
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  • Interserve PLC (IRV.L)
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  • Metro Bank PLC (MTRO.L)
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